Consolidation in the dairy industry has often meant the creation of mega companies. For Buffalo, N.Y.-based Upstate Niagara Cooperative Inc., it has been a careful strategy to allow the farmer-owned co-op and processor to play in the broader market while staying true to its heritage.
“Our roots have always been in Western New York and this was an opportunity to strengthen our roots,” Lawrence Webster, commercial division chief operating officer, says of the summer 2006 merger of the Upstate Farms and Niagara Milk cooperatives.
The merger created a company that can boast $570 million in annual sales from a full line of fluid and cultured dairy products, including yogurts, dips, cottage cheese, sour cream, milk, creams and creamers, flavored milk beverages, chilled coffee, sports drinks, ethnic beverages and ice cream mix, sold under the Upstate Farms, Wendt’s, Bison and Intense Milks brands, as well as several private labels.
“We were involved in a strategic planning process that we had to take a break from because of the merger,” recalls chief executive officer Bob Hall, noting that the union was consummated more quickly than perhaps many expected.
But in a dynamic industry, speed is often of the essence. The merger came just a few months after Upstate opened its new, state-of-the-art cultured products manufacturing plant near Buffalo, yet another strategic move aimed at getting the co-op’s members the most bang for their buck.
“They strongly believe you have to be involved in marketing,” Hall says of producer members, who see the company more as a processor owned by farmers. “That has set the stage for what’s happening. We value our independence, but we’re not naïve.”
But does the merger give Upstate a stronger position in the Northeast against giants like Hood and Dean? “We think we’re in a separate position. We’ve structured very carefully what we call an integrated milk-marketing system,” Hall says. “We have every respect for the large dairies of the world … [but] we think we’re finding a place that’s a little different. I worried more 10 years ago than I worry today. … We had some concerns about whether we were big enough to compete.”
Diverse operationsWith some 400 farmer owners, Upstate Niagara encompasses three divisions with about 1,000 total employees: a commercial division, which produces branded products, operated by some 650 employees; the O-AT-KA Milk Products subsidiary, run by about 300 employees who make specialty- and value-added products, and provide balancing services to the co-op; and a bulk division that sells milk and cream to other manufacturers.
Yogurt products are about evenly split between Upstate’s own brands and private labels; cottage cheese and sour cream run about 70/30 favoring co-pack clients, while 80% of dips made are marketed under Upstate’s own marques.
But on a pound basis, including bulk, fluid milk is the company’s top product, Hall says, with cultured making up about 20% of its commercial business. “We process 75 to 80 percent of our milk,” he says.
However, it’s that 20% that has given Upstate an identity beyond its traditional geographic area. In fact, Upstate-branded cultured products can be found from Alaska to the Caribbean, mainly due to foodservice and institutional distribution channels. And the new plant “was a strategic direction to carry that even further,” Webster notes.
The company started selling into the vending channel in 1999 and has expanded this business by offering a comprehensive program to schools and other institutions, in conjunction with the programs available through Dairy Management Inc., explains Kenneth Voelker, director of marketing. “Our Intense Milk single-serve line is perfectly suited for vending, contributing to a tenfold growth of this business throughout the years,” he says. “The growing awareness of health concerns positioned milk as a viable alternative to soda, and the increasing popularity of vending machines played a significant role in the expansion of this business.”
Upstate offers vending programs tailored to each institution’s specific needs. “It was fairly easy to prove that these machines increase milk sales while generating higher customer satisfaction at a fraction of the labor cost required for traditional á lá carte sales,” Voelker says.
Upstate has milk vending machines in schools, colleges, universities, company headquarters, sports facilities and other institutions. “Our milks were well received, and even with some foodservice professionals’ cautiously optimistic buy-in, we were able to switch the test phase over to permanent placement in most cases,” Voelker says.
In addition to milk, Upstate offers yogurt for vending in 3-A-Day vending machines that can dispense milk, cheese and yogurt.
Meanwhile, Upstate has been rolling out organic products. “One of the most successful organic products that we have developed is [a major northeastern grocery chain’s] organic yogurt line, which has surpassed sales expectations already in the first few months from its introduction,” Webster says.
This success has come in spite of certain hurdles. “The demand for organic dairy products has been a challenge for our cooperative, which did not have its own organic milk supply at the time,” Hall says. “Our membership division has aggressively recruited new members and assisted existing ones to transition, thus establishing an organic milk source to provide us with the much needed steady supply of high-quality milk.”
Between the healthy halos of probiotics and organics lies what the folks at Upstate see as a significant opportunity for the industry as a whole. “The biggest potential gain for the dairy industry lays in the growth of health-oriented dairy products,” Hall says. “Our country still lags behind other regions in the world in terms of yogurt and other functional dairy product consumption.”
Taking on challengesAnother area in which the Upstate team says the dairy industry can be positioned as a winner is the increasingly strong focus on sustainability.
“The dairy industry is facing a variety of challenges, including rising milk prices and current economic conditions,” Hall says. “We are also significantly impacted by rising energy and fuel costs. To deal with these challenges, we have become members of several buying groups to help us negotiate better deals in sourcing our materials and utilities.”
To ease the pain at the pump, Upstate set the governors on its truck fleet to 62 mph in an effort to conserve diesel fuel and has banned idling. “We’ve talked to our guys about how to drive to get the best mileage,” Webster says, noting that fleet managers check the price of fuel daily online and guide route drivers to the cheapest gas stops along the way.
Meanwhile, all recent company car purchases have been hybrids. “Our sales people put on a lot of miles,” Hall says. “It essentially cuts our fuel costs in half.”
But despite some successful hedging of diesel fuel, for long-haul trucking there is no easy solution. Biodiesel is not considered a serious option at the present time. “I don’t think it’s available in the volume we’d need it,” says Jim Murphy, director of quality operations.
Upstate’s main selling points are quality, food safety and its R&D capabilities. “Since we have control over the entire supply chain, we are able to manufacture fresh and delicious dairy products and deliver them safely and in a timely manner to our customers,” Murphy says.
The company’s strategy for expanding its market share is controlled growth through the introduction of new and innovative products while continuously improving the quality of its products and service. “With our highly skilled R&D professionals, we are able to formulate highly complex products to meet different consumer needs,” Murphy says. “We sustain our competitive edge through the careful formulation and manufacturing of our products to maintain the highest quality and also by staying focused on continually improving our operations through the installation of new equipment and commissioning of new facilities such as the plant in West Seneca.”
The new plant was needed, he explains to meet a growing demand for cultured products and expand capacity that had been stretched to the limit at Upstate’s aging facility in downtown Buffalo. Other improvements in recent years have included cooler expansions, installation of new equipment and fillers, installation of an R&D pilot plant and implementation of a dairy case management and auditing system.
“We offer a dairy solution for every distribution channel,” Webster says. “Our multi-segment approach is truly innovative. We offer kosher and supervised kosher dairy products, and organic and rBST-free products, and have the flexibility to fill specialty and bulk packaging – anything from portion-controlled sizes to totes and tankers.”
A solid foundationTo promote its branded products, Upstate uses a wide variety of marketing and sales support programs, including print and outdoor advertising, transit advertising, radio and TV, in-store advertising and demos, FSIs and event marketing. “We are active members of the ‘Pride of New York’ marketing program and participate in their marketing initiatives as well,” says Kenneth Voelker, director of marketing.
And it seems the company has a lot about which to toot its own horn. Over the past decade, Upstate products have won numerous awards, including 22 awards for the Upstate Niagara Cooperative and nine awards for O-AT-KA at the New York State Fair. Among other awards, Bison dip was named best-tasting dip six times at the state fair.
These successes are only part of how Upstate stays in the public eye. “Our company is committed to supporting the communities in which it operates and it aligns itself with worthy causes and organizations that share its values,” Voelker says. “We support local sports teams and school and community events through our extensive grassroots efforts.”
That involvement comes out of Upstate’s management philosophy, which its leaders say is rooted in the cooperative’s core values: integrity and honesty; trustworthiness; loyalty to member-owners, customers and employees; respect for others; pride in its work; and quality.
“The company’s most unique aspect is definitely the fully integrated milk marketing system,” Hall says. “We have an ample and high-quality milk supply that allows us to provide the freshest dairy products safely and consistently to our customers. This also allows us to more easily implement sustainability initiatives designed to reduce the cooperative’s impact on the environment and to provide added support to the communities which surround our operations.”
For the future, Upstate Niagara will focus on investing in new product development, technology, future acquisitions, plants and equipment.
Specifically, Hall explains, Upstate is targeting the following areas: expanding distribution of private label retail products to the entire geographical area east of the Mississippi River; expanding its foodservice business and introducing new branded cultured product offerings for additional foodservice channels.
“We build on a solid foundation,” Hall says. “A spirit of working together through cooperation, customer faith and consumer loyalty are all building blocks enabling us to grow and remain one of the most reputable dairy food manufacturers in the Northeastern United States.”
HistoryThe story of Upstate Niagara Cooperative Inc. starts with its farmer owners, who in the early days belonged to a number of dairy cooperatives throughout Western New York. The company’s modern history begins around 1970, when Buffalo- and Rochester-based co-ops came together to form what was known until recently as Upstate Farms, which continues as the group’s flagship brand. The union gave the organization a milk-bottling plant in each of those cities, which continue operating today.
In 1983, Upstate Farms acquired the Bison Foods Co., manufacturer of cultured products including cottage cheese, sour cream, dip and yogurt. With the acquisition came Bison’s plant on Scott Street in downtown Buffalo, which was closed in 2006 when the co-op opened its new state-of-the-art cultured products facility in nearby West Seneca.
The company manufactures and markets milk, cultured products, yogurt and milk-based beverages under the Upstate Farms, Bison, Wendt’s and Intense brands, as well as private label products, to customers in the retail, foodservice and industrial sectors.
On July 1, 2006, the Upstate Farms and Niagara Milk cooperatives merged to form Upstate Niagara, owned by 405 dairy farm families in Western New York. “The merger of our two dairy cooperatives, into one of the largest and most effective in the Northeast, is the result of generations of commitment by and for dairy farmers to create a strong organization to further their security and well-being,” says Dan Wolf, president of Upstate Niagara.
The cooperative controls its members’ milk from production on the farm all the way through the supply chain, to customers and consumers, and maintains manufacturing facilities centralized to its milk supply. In addition to its fluid milk and cultured facilities, as majority owner (88% share), Upstate operates a specialty beverage manufacturing plant under its O-AT-KA Milk subsidiary in Batavia. Swings in milk supply and milk demand are balanced by this plant that was established more than 40 years ago.
Upstate Niagara Cooperative employs nearly 1,000 people. These employees continue the tradition of generations of quality Western New York dairy products. “We’ve come a long way in a short time,” says Bob Hall, chief executive officer. “Our improved facilities, financial performance and security for our members mark only a new beginning. This is a great start, and we are looking forward to growing together.”
The Upstate Niagara Family of ProductsUpstate Niagara markets a full range of dairy products under its Upstate Farms, Bison, Wendt’s and Intense brands, including milk and assorted cultured products.
The Upstate Farms brand can be found on an extensive product line featuring milk, yogurt, cottage cheese, sour cream, butter, creams and frozen dessert mixes.
Milk is offered in conventional and “rBST-free” varieties in fat levels ranging from whole to skim, flavors including chocolate and cappuccino, and buttermilk.
Nonfat yogurts, offered with reduced sugar and the “ABC cultures” (L. acidophilus, bifidus and casei), are purported to have a longer shelf life than other brands. Flavors include vanilla, strawberry-banana, cherry vanilla, peach, raspberry and strawberry.
Also sold under the Upstate Farms banner are cottage cheese at 1% and 4% fat levels; sour cream; and an assortment of butter products including 1-pound solids, quarter sticks and continental chips; juices and drinks including orange juice, fruit punch, iced tea, lemonade and spring water; eggnog; cream products including half & half and aerosol whipped cream; and a wide variety of frozen dessert mixes in various flavors and fat levels.
The Intense Milk brand was created to appeal to a more youthful demographic and features a variety of flavored milks in single-serve plastic pint and half-pint bottles with dynamic graphics. Available in regular and low-fat varieties, chocolate, vanilla and strawberry milks are the staples of the line while rotating flavors include Mint Chip, Cookies ‘n Cream, Mocha Java and Orange Scream.
Made by Upstate for nearly three decades, the Bison brand offers the No. 1 selling dip in Western New York. Bison dip flavors include French Onion (regular and reduced fat), Southwestern Chipotle, Salsa and Ranch.
Bison’s cottage cheese products include small and large curd at 4% fat, low-fat small curd, a non-fat variety and cottage cheese flavored with chives or pineapple. There’s also Bison-branded sour cream in regular, light and non-fat varieties.